On the Pennsylvania return, you need to manually indicate which retirement distributions are not taxable (because some are taxable).
In the Pennsylvania state interview, you will come to a screen entitled "What kind of retirement income do you have from Pennsylvania?" Actually, you'll get one of these for each 1099-R you enter on the federal.
The second line identifies which 1099-R this screen is referring to. In my test, it says "Pennsylvania needs us to get really specific about the kind of retirement income you're receiving from [name]." (where [name] is the name you gave your 1099-R on the federal return).).
This screen wants to know what type of pension this is since some pensions are taxable in Pennsylvania.
At the box entitled "State Type Code", pull down the menu.
Choose "I'm eligible; plan's eligible (no PA tax)"
You are eligible if you were eligible to retire under your plan's rules (as opposed to early).
The plan is eligible if it meets Pennsylvania rules. See this article from the Pennsylvania Institute of Certified Public Accountants about eligible plans in Pennsylvania.
If you are not sure about your plan, contact the plan administrator and ask if their plan is a Pennsylvania qualified retirement plan (refer them to the link above if necessary).
